A vacation home is not just the place where you and your family retreat to when you need a break from the daily grind. It’s an investment – and like all investments, it needs oversight. To maximize the value of your secondary property, you need to protect it, secure it, and leverage it.
You wouldn’t take chances by not having home insurance; it’s equally important to have insurance on your vacation home. Rob Stevenson, director of strategic marketing, Armour Insurance Group Ltd., explains.
“When looking at insuring your vacation property there are usually two types of insurance to consider: secondary home owners and seasonal property. Seasonal property insurance can vary from basic coverage, such as fire, lightning, and some extended coverages to something more extensive. The secondary homeowner’s policy is similar to a standard (primary) property policy; it generally has more coverage options than most seasonal policies. To determine which type of policy your second property qualifies for, insurance companies look at several factors, including: how often you occupy the location, the type of heating, the age of the building and if updates have been done to the dwelling.”
Stevenson points out, “There are also surcharges for log homes.”
“Typically, if the home is insured as a secondary location, you need to be occupying it on a regular basis (such as two days per week throughout the year), and the home must be maintained as a year-round residence,” says Stevenson. “If the home is insured as a seasonal location, you may have to occupy the location only once every 90 days, or even less depending on the insurers’ requirements.”
While it’s fashionable these days to rent out secondary homes on sites like Airbnb, Stevenson warns, “Not all insurance companies are covering homes with short term rentals. Check with your broker.”
As with all insurance policies, he notes that it’s important to review your coverage annually. “If you haven’t reviewed the type of coverage on your secondary/vacation home in the last few years, it may be beneficial to do so now. Ask what type of insurance coverage you have, and what you need to be aware of to make sure that you are meeting the eligibility for that coverage if it is more than your basic insurance package.
“Armour Insurance brokers are experts in insurance. To us, insurance is about more than just protection. It’s about providing our customers with the financial freedom to live their lives the way they want. It is our insurance that will pay to fix their property, get their car back on the road or rebuild their business when disaster strikes. That is why we strive everyday to be Alberta’s best insurance broker.”
It’s easy to know if your primary residence has been compromised by vandalism or theft, but how can you secure your property when you are not always on site? Kristin Krysa, customer experience manager with Telsco Security, explains the advantages of a security system that can be managed remotely from a smartphone.
“With vacation properties, there is an enhanced level of value that comes with awareness and connection. This goes above and beyond an intrusion system. Knowing if the water level is rising in your sump at the cabin is incredibly powerful, as is knowing that the temperature was left up too high when everyone left after Christmas vacation. Taking it one step further and adjusting your thermostat or setting up a lighting schedule from your smartphone can offer huge savings when it comes to time and money. Utilizing professional video to see your vacation property and know what is happening in real time provides vacation homeowners with great peace of mind.”
The technology in these systems, Krysa points out, is not confined by geography.
“We are setting up interactive security that allows homeowners to control and connect to their security systems from anywhere in the world using a smartphone, tablet, or PC. These systems range from essential intrusion protection to fully integrated home automation and video solutions. One thing that all of our systems have in common is that they are monitored and supported by our team here in Edmonton. Professional monitoring is key when it comes to protecting any property.”
What if you have that home listed on Airbnb? Can you monitor it without violating privacy laws?
“A security system is not only a great tool to protect an Airbnb property, but it is also a tremendous management tool,” informs Krysa. “With an interactive security system, you can assign alarm codes and door lock codes for your guests from the comfort of your home and be instantly notified as soon as they arrive. It’s a great experience for your guests as well; they can choose a code that is familiar to them and not have to worry about forgetting or setting off the alarm. When your guests have completed their stay, you can check to ensure that doors have been locked, the system has been armed, and the temperature has been adjusted to your preferred setting. Airbnb guests may not appreciate cameras, but there are several options that allow you to stay connected to your rental without infringing on the privacy of your guests.”
She continues, “Many people don’t realize that security systems are capable of doing much more than simply protecting their homes from intrusion. They can help save lives and protect property with monitored smoke detectors, CO (carbon monoxide) detectors, flood sensors, and low temperature sensors.
“Just like we approach a primary residence, we help vacation property owners by asking a lot of questions to ensure we understand both their needs and the value we will be able to bring to their security solution. We have been serving Edmonton and area since 1970 and have a great deal of experience protecting a variety of properties and lifestyles.”
Real estate forms part of your estate, which is your assets and liabilities. Your estate can be inherited and passed on. Leveraging your vacation home can help you secure your retirement; however, it’s complicated.
Tom Castonguay, CFP and owner of Shelter Bay Financial, knows speaking with an estate planner is important when you own a secondary home.
“Vacation homes are a taxable asset. If you do not plan carefully, your estate could end up with a capital gains tax bill that may force the children to sell the property,” he points out. But tax is not the only consideration. “If the property is part of the inheritance for the children, consider the impact of the kids trying to divvy up who gets to spend time at the cottage, who maintains it, and who pays the bills.”
“Have an honest talk with your family,” urges Castonguay. “The children may not want to share the property or may not have the funds to maintain it. The best solution may be for the aging parents to downsize into the cottage and use it as a primary residence, or for the property to be sold and the equity to be put into cash investments or in trust for the children.”
“It is important,” he continues, “to speak with a knowledgeable estate planner to ensure the property is being treated appropriately from a personal and tax standpoint, and to make sure that it is adding value to your estate now and in the future.”
Certified finanical planners and estate planners help secondary property owners to leverage the home based on the owners’ personal needs, goals for the future, and what they must do to remain tax compliant.
Owning a vacation property is a dream come true for many Albertans, and with a little planning to protect it, secure it, and leverage it, you’ll have plenty of time for the best part of all: enjoying it.